MW Stock-market investors can't shake tariff uncertainty. Trade deals hold the key.

By Christine Idzelis

Unsettled tariff policy makes 'conjecture' about company earnings a 'borderline waste of time,' says Morgan Stanley's Andrew Slimmon

It seems hard to get too excited about stocks despite their recent rally, as tariff uncertainty overwhelms upcoming data on the U.S. economy.

While investors will closely watch reports in the coming week on jobs, inflation and gross domestic product, the data will be backward-looking amid heightened concern that President Donald Trump's sweeping tariffs announced on April 2 may inflict future damage on the economy.

"We don't want to take too much risk at the country level," or take "big views on overweighting or underweighting the U.S. versus the rest of the world," said Alexis Deladerrière, co-deputy chief investment officer for the fundamental equity business at Goldman Sachs Asset Management, in an interview. "I think people should diversify their portfolios."

Markets are grappling with uncertainty over where the size of Trump's tariffs will ultimately shake out as the White House aims to negotiate deals around the world. Investors in particular are trying to discern where U.S. talks may stand with China, the world's second largest economy.

"Unless you're sitting in the Oval Office, you don't really know what the future holds," said Andrew Slimmon, a senior portfolio manager for U.S. equities at Morgan Stanley Investment Management, in a phone interview. So "conjecture" concerning companies' future earnings seems "kind of crazy" and a "borderline waste of time," he said.

The U.S. stock market has lagged the rest of the world since President Trump announced "liberation day" tariffs on April 2, with European stocks up since then while the S&P 500 SPX is down over the same stretch.

Since April 2, the S&P 500, a gauge of U.S. large-cap stocks, has fallen 2.6% through Friday. By contrast, the iShares MSCI ACWI ex U.S. ETF ACWX, an exchange-traded fund that tracks an index of global stocks outside the U.S., rose 1.4% over that same period. And the Vanguard FTSE Europe ETF VGK, which tracks an index of equities in major European markets, has climbed 2.5% since April 2.

European stocks have recently benefited from the E.U.'s plans to ramp up defense spending as well as Germany's push to increase infrastructure investment. But the European Union also faces large levies announced by Trump on April 2, with investors watching for whether those too may be reduced through negotiations with the White House.

Tariffs have been "overwhelming" for markets, and now "we are neutral" stocks and bonds globally, said Phil Camporeale, a portfolio manager for J.P. Morgan Asset Management's global allocation strategy, by phone.

Camporeale explained that he had been overweight stocks globally coming into 2025, but moved the allocation to U.S. equities to "flat" by the end of March, "as the shine of US exceptionalism was coming off," and he still saw reason to be overweight the rest of the world. Then, in April, with "so much global uncertainty," Camporeale said that he also moved international equities to neutral as well.

Read: Where Trump's tariffs and economic promises stand as he nears 100 days in office

'Light at the end of the tunnel'

Tariff negotiations probably won't resolve quickly across the board, according to Deladerrière.

"Our view is that as we progress through these trade negotiations we are going to slowly get more certainty," he said. "The new rules may involve tariffs at different levels for different industries and different countries," he said. Ultimately, it could take "at least months," but probably years for the U.S. to totally reshape its trade relationships, Deladerrière expects.

But "what's important for equity markets is the light at the end of the tunnel," he said. Signs that negotiations are moving in the right direction, as the White House works out trade deals country by country and sector by sector, will be positive for equity markets, according to Deladerrière.

Still, he said that, "until we know the new rules of the game, it's hard to know how businesses are going to adapt" and reshape their supply chains.

In the meantime, he said he's focused on identifying high-quality companies with "good pricing power," high margins, as well as strong cash flow and balance sheets to help them through the uncertain and volatile tariff environment. "This is where we want to take our bets," he said, as opposed to trying to bet on one country versus another.

Read: Deutsche Bank sees major trouble ahead for the U.S. dollar

In the coming week, investors will get readings on the U.S. employment situation in April and on March inflation. The U.S. jobs report is due on May 2, while the data on inflation, as measured by the personal consumption expenditures price index, will be released on April 30.

The U.S. economic calendar also includes an April 30 report on GDP growth in the first quarter.

"We should expect the economic data to continue to soften," Deladerrière said. But he added that reports on the U.S. economy in the coming week won't reflect the deterioration that investors worry tariffs risk causing over the next six to nine months.

Tariff uncertainty has many businesses on hold when it comes to making hiring and spending decisions, he said, which has led to expectations for slowing growth in the U.S.

The U.S. stock market closed Friday with weekly gains, as the S&P 500 rose a fourth straight day for its longest winning streak since January. But the index was still down 1.5% so far in April, remaining in the red this month after markets were rocked by "liberation day" tariffs.

Pointing to the S&P 500's trough this year on April 8, Slimmon said that he viewed the index's steep drawdown from its record high on Feb. 19 as a buying opportunity for investors. The S&P 500 tumbled almost 19% over that period, FactSet data show. Even if tariffs are hard to try and figure out, investing after such a large drop has historically paid off over the next year, he said.

The S&P 500 ended Friday at 5,525.21, down 6.1% year to date.

"I think tariffs will whip around the equity market," whereas high-yield corporate bonds look "pretty stable," said Camporeale. High-yield bonds are rated below investment grade, but he said they're providing "good yield" of around 7.5% for about half the volatility of stocks.

He said he likes high-yield bonds with shorter maturities of 1 to 3 years and that he is avoiding the riskiest parts of that market. While the risk of recession has risen due to tariffs, Camporeale said that, at least for now, he's expecting "pretty anemic" growth in the U.S. this year of less than 1%.

Over the next few months, the upside for the S&P 500 might be capped at around 5,800, according to Keith Lerner, co-chief investment officer and chief market strategist at Truist Advisory Services. "There's been an open debate about, ok, how far are we going to go with these tariffs," he said in a phone interview. And "right now the range of outcomes is wide."

-Christine Idzelis

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April 27, 2025 12:00 ET (16:00 GMT)

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